Consistent standard formula replication (implicit correlations)
Consistent standard formula replication (implicit correlations)
Consistent standard formula replication (implicit correlations)
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Examples of Techniques to Integrate PIMs II<br />
‣ Two world scenario<br />
‣ Results internally modeled are added up to the <strong>standard</strong> <strong>formula</strong> results<br />
‣ Assuming no diversification benefits<br />
‣ Advantages<br />
‣ Simple, straight forward technique<br />
‣ No modelling costs<br />
‣ Prudent in most cases<br />
‣ May encourage the development of full internal models<br />
‣ Applicable to all cases of PIMs<br />
‣ Disadvantages<br />
‣ Not risk sensitive<br />
‣ Not likely to reflect risk profile<br />
‣ Can discourage development of PIMs<br />
‣ Not always prudent
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